A Healthy Buying Spree : Medical Devices Flow Into Germany

By JAMES M. GOMEZ

Oct. 17, 1993 12 AM PT

TIMES STAFF WRITER

BERLIN —

Four years ago, Eckehardt Nesener was a laboratory chemist for the high-security hospital that catered to the Stasi--the secret police of former East Germany.

Tucked away in a lush rural section of what was once East Berlin, the monolithic Stasi Hospital required a difficult-to-obtain security clearance for Nesener to enter.

Today, the only credential he needs to furnish to the hospital guards is his business card as a salesman for Beckman Instruments Inc., the Fullerton-based maker of medical laboratory equipment.

“All things have changed,” said Nesener as he guided his new Mercedes-Benz sedan through narrow streets, handled several calls on his car phone and chatted with his boss, Jutta Muller, who was along on a trip from her office in Munich. “The new life makes many opportunities.”

Indeed, sales opportunities for U.S. medical device companies, many of which are based in Southern California, are abundant in the former Communist nation, government and industry officials said.

As part of unification, the Bonn government is pouring billions of dollars into the the east--where 17 million people live--to modernize health facilities. The resulting demand for medical equipment comes amid a deep recession in Western Europe that has otherwise slowed demand for American products.

For instance, Beckman spokeswoman Elke Eastman, while declining to give actual dollar amounts, said that the company has seen its sales in eastern Germany jump 53% from 1991, almost two years after the Berlin Wall was torn down, to the end of 1992.

“It is the bright spot in Europe right now,” said Matthew Gallivan, an analyst with the Health Industry Manufacturers Assn. in Washington, a trade group for U.S. medical device manufacturers.

The U.S. Department of Commerce estimates that total medical device expenditures in unified Germany is expected to top $7 billion this year with an annual growth rate of more than 7% through 2004. That compares to an annual growth of about 4% within the rest of the European Community, which encompasses most of Western Europe.

While some of the purchases are taking place in western Germany, the vast majority of new product acquisitions are in the states of the former East Germany, including Berlin, said Commerce international trade specialist Brenda J. Fisher.

In Berlin alone, the German government has earmarked about $400 million this year--and $4 billion by 1998--to renovate the city’s 33 city hospitals and build two new ones, according to a January analysis by the Commerce Department’s German desk. Over the next five years, some $4 billion will be invested in the hospital upgrade project.

Some hospitals, such as the Krankenhaus Neukoelln, are spending money on renovating old buildings and building psychiatric units. Others, like St. Joseph Krankenhaus, are concentrating on building up specialty treatment centers, such as pediatric and neonatal wards.

“They are all in desperate need to renovate their hospitals and clinics,” Fisher said.

At the so-called Stasi hospital, now called Klinikum Berlin-Buch, the facility went through tremendous upheaval with the fall of the Communist state and the integration into the West. From more than 4,000 beds, the hospital has scaled back to 1,700--still considered large by Western standards.

Those beds that remain are surrounded by almost primitive conditions. Dr. Detlef Becker, head of the Klinikum Berlin-Buch’s laboratory, said that one of the first goals of the hospital is to raise the standards of the wards by purchasing an array of durable medical equipment, including electric beds and bedside diagnostic equipment.

“We have a very bad infrastructure,” Becker said. “We want the patients to feel like they are in a hotel.”

Secondly, the hospital is launching an ambitious modernization program for its clinical laboratories, which are located both at the hospital and in a tree-lined campus about two miles from the hospital complex.

To that end, Becker said he has purchased blood and chemical analyzers from Beckman Instruments and is testing a device manufactured by Swiss medical giant Hoffman La Roche.

“We have purchased more equipment in the past three years than we did in the previous 20 years,” Becker said.

But hospitals are not the only target for American medical device firms. Without government jobs, about 40,000 former East German doctors are now forced to establish private practices.

That means purchasing office equipment, such as surgical instruments, X-ray machines, diagnostic instruments and other products in huge volume, said Detlef Geurtler, a journalist with the Wochenpost, a Berlin news weekly.

“These doctors have nothing else to do but go private,” said Geurtler, who specializes in the privatization of former East German enterprises. East German doctors are now scrambling for private loans to underwrite new business. “That takes a lot of money.”

Some companies, however, must patiently wait for the completion of the eastern German renewal effort.

Irvine-based Newport Corp., which has an office in Darmstadt, near Frankfurt, makes equipment for specialized research laboratories. Patrick Wong, vice president for international sales, said his company has seen business slump in Germany.

Wong said the lower sales are because almost all of the money that once was available for research and development in western Germany is being funneled to eastern Germany to rebuild its medical infrastructure

“This is a tough time right now, especially in Germany,” Wong said. “People in the R&D; sector don’t have a whole lot of money to spend.”

In the long term, however, the future looks better, he said, when the integration effort is completed and researchers again receive their share of renewal funds.

To ensure that German sales remain strong, medical device makers such as Beckman, Newport Corp., Illinois-based Baxter International, and Allergan Inc. of Irvine have been recruiting Germans to help with their sales efforts.

Diehart Reichardt, corporate vice president for international sales at Allergan, which makes optical and skin-care products, said that the best way to to develop a loyal clientele is by using local companies and employees.

He said that American firms should “create a local image to make sure they are not seen as foreign bodies.” This is especially true in the medical industry, where you have to deal with discriminating doctors and hospitals, he said.

“Many companies have failed in Europe because they have failed to do this,” he said. “You have to have the right people and you have to trust them. Good things take time, but if you are in (the market) you are in for good. The German market can be very loyal.”

Lisa A. Ferguson, a health-care analyst for Biomedical Business International in Santa Ana, a medical newsletter that also sponsors medical conferences around the United States, agreed that companies having a local presence through joint ventures or licensing agreements will prosper, especially with European Community import duties at 5.1% and value added taxes on imported products at 15%.

But establishing relationships with the country’s 2,000 medical supply distributors would prove especially valuable, she said.

Ferguson also said that joint alliances with German companies are an option for Americans.

“There is no doubt that German buyers feel more comfortable with manufacturers and distributors operating within the strict German laws and there is an underlying preference for Germany technical quality,” she said.

John Eberts, director of international sales for McGaw Inc. of Irvine, which makes intravenous bags, fluids and IV pumps, said that his company has looked for European partners to make inroads into Germany.

Under a recently signed licensing agreement with the German subsidiary of Swedish drug giant Kabi Pharmacia, McGaw will receive royalties for sales of its intravenous bags manufactured by Kabi in Erlangen, located in the Germany state of Bavaria.

McGaw is also negotiating with another German firm to make its pumps in Germany. Such a strategy, Eberts said, saves time in receiving marketing approvals by German health officials and gets around tariffs and overseas shipping charges.

“It is just easier if the products are made in Germany rather than if they are imported,” Ebert said, adding that relying on manufacturers there to make McGaw’s products through licensing agreements saves the company time in reduced overseas travel for American executives. “I can quite often work over the phone with them.”

But to date, the greatest push for a deeper American presence in the eastern German medical market has come mainly from Germans, especially in the east, officials said.

In late September, delegates from all 16 German states toured the United States to drum up investment interest.

Reinhart Bischof, president of the government-sponsored Economic Development Corp. for the state of Thuringen, located in the southwest region of former East Germany, said recently that officials there are welcoming Americans and Canadians to build manufacturing facilities in his state as a way to compete effectively with western German manufacturers such as Siemens Aktiengesellschaft, Philips Medizin Systeme and Hellige.

“These (American) businesses could compete with the biggies in West Germany,” he said. “It will take a few years, but I can say that we can be comparable to the west.”

Commerce Department spokeswoman Fisher agreed. In December, her office is set to sponsor a five-day trade mission to Berlin and Leipzig, both former East German cities.

During the trip, American medical device manufacturers would have the opportunity to make contacts with eastern Germans interested in either purchasing or entering into joint alliances, she said.

“They (eastern Germans) keep saying to us, ‘Where are the Americans? Where are the Americans?’ ” Fisher said. “Well now we will be bringing them a concentrated group.”

The outcome of such interaction, said Michael Mussallem, president of Baxter’s Irvine division, will be that American firms have stronger impetus to invest in eastern Germany.

“We would have done things cautiously in the past,” Mussallem said. “But we are exploring opportunities with people who already have strong presence there.”

The company’s Germany subsidiary, Baxter Deutschland, based in Munich, is also looking for buyers of cardiovascular equipment.

One likely candidate is Klinikum Berlin-Buch. At its clinical laboratory, for instance, the needs are legion, even after three years of political unity with the West.

Outside, the laboratory resembles a charming Ivy League college campus. Inside, the hallways that lead to the laboratories and offices are buckled with decades of neglect.

On the walls, ancient, painted-over wiring leads from unprotected fuse boxes to nearly-empty laboratories. In one cubicle, a cumbersome-looking East German-made blood analyzer sits on a scuffed desk in a corner.

“It has been difficult,” said Beckman salesman Nesener, whose territory includes eastern German hospitals and doctors’ offices from Berlin to Rostock on the North Sea.

“West Germans took no special effort right away,” he said. “Now there are many opportunities for my company.”

German Market Expands for U.S. Medical Firms

The modernization of former East German hospitals and other medical facilities has led to a potential sales boom for U.S. medical device manufacturers. Many Companies, such as Beckman Instruments in Fullerton, are making sales inroads into the former communist state.

U.S. Second in Market Share

In 1992, the United States ranked a close second among the top five suppliers of medical equipment to Germany.

Japan: 22%

United States: 21%

Netherlands: 17%

France: 6%

Great Britain: 4%

German Market Growing

The value of imported American technical medical equipment is expected to top $300 million this year and to increase 20% annually for the next three years. Import value in millions:

1991: $228

1992: $285

1993: $301*

* Projection

Best Sales Prospects

During the next five years, expenditures to modernize hospitals are expected to top $4 billion in Berlin alone. Here’s what the hospitals need most:

* Non-polluting plastics and technologies for the manufacture of medical disposables

* Patient-monitoring systems

* Ultrasonic scanners

* Non-electronic diagnostic and therapeutic equipment

* Respiratory therapy equipment

* Nerve and muscle stimulation devices for rehabilitation